Paying Yourself First vs. Paying Others First

We each have our own tolerance for debt. For me, it’s not something I enjoy. Owing other people money is toward the bottom of things I’d like to do. Others may not mind carrying some debt, and barely think twice about it.

As I think about it, no matter which side of it you’re on, there can be a risk of thinking of money as something that is given to others in exchange for things.

Paying Others First

For the person who doesn’t mind taking on debt, it can lead to a life that is structured in such a way that certain fixed payments have to be made on a regular basis. For example, an expensive mortgage, car payment, credit card balance partial payments, and the like.

In this case, people first think about the payments they must make to others, and then decide that what’s left over is what they have to spend on other things.

If lucky, whatever is left over after that might be allocated toward savings.

At extreme end, here is what that “Pay others first” model can look like:

Repay debt

Spend on other necessary life expenses

Spend on what you enjoy

Save

While that can bring the possibility of enjoying the here and now, it places the future in a position of lesser importance.

Paying Yourself First

With this approach, our mindset is not that we have to first take care of debt and other expenses. It’s not about looking at money as something to spend on enjoying life today first and foremost.

Rather, it’s an approach that’s defensive in the short term but really grounded in long-term thinking. It’s that we should first prioritize saving, and then secondarily focus on spending for enjoying life today. Yes, it’s saving before spending for today’s fun.

I know that might sound kind of boring, I won’t disagree with that. But in the long run, I think this is the way to go.

While the “enjoy” part is a lower priority here than in the prior ordering, I think the key thing is that it’s only for a certain period of time. In the long run, with the Pay Yourself First approach, you’ll be more likely to have seen your money compound and grow to impressive amounts. Investing your money and earning a solid rate of return can potentially do wonders for one’s long-term finances.

Thus, the long-term ordering might eliminate savings and debt repayment, and be totally focused on your routine expenses and simply spending on what you enjoy.

Pay others first and save later means constantly hustling to maintain your lifestyle. You might start out sprinting like a rabbit, beating that tortoise who delays gratification.

But in the long run, the tortoise who pays himself (or herself) first will likely achieve a more fruitful financial existence – with the money to enjoy things later in life when it gets harder to find and keep work.

I say pay yourself first is the way to go!

How do you approach savings? Spend first and save later, or save first and spend later?

Comments

We like to save first now, but that was always the case. We had to change our mindset about are money and stop just trying to manage minimum payments. Once we did that we say the power in paying ourselves first.

I save first before I spend. It just doesn’t feel good to buy things without saving and keeping my financial affairs in order. Right now I’m saving some of my extra earnings so I can buy a new laptop next year. I want to feel like I earned it and don’t want to rush into a purchase that expensive.

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Disclaimer

We are well meaning folks that are not investment professionals or financial advisors. Please feel free to have fun here, and take this information in the spirit of entertainment, as it is not financial or legal advice, For that, seek an appropriate professional. Your actual financial decisions are your own responsibility. Thank you.